Crieff Hydro achieved a 42per cent rise in pre-tax profit last year to £720,011 and says investment in the loss-making Peebles Hydro will eventually yield returns.

The group headed by tourism sector leader Steven Leckie raised turnover in its core business by six per cent for the second successive year, to £20million, but has now consolidated its two Peebles hotels and four managed hotels into one group with £24.5m of turnover.

Mr Leckie writes in the latest annual accounts: “The pooling of the group’s eight hotels....is expected to provide the opportunity to leverage best practice across all disciplines in each hotel and deliver revenue and cost synergies.”

The two Peebles hotels made a pre-tax loss of £229,571, on revenues of £4.37m, resulting in an overall group pre-tax profit of £567,583, according to the annual report for the year to February 28.

But the hotels, acquired from the McMillan group last year, made an operating profit of over £1.5m, with 65per cent occupancy achieved during the year.

The group is investing £1.4m in the current year to address a “quality of product (which) had been eroded over many years by operating with an unsustainably low cost base”.

Meanwhile Freedom Hotels, the contract management arm, expects a second successive fee increase this year as part of long-term incentives based on operating performance and hotel value.

At Crieff Hydro and The Murray Park Hotel, occupancy matched the prior year at 84 per cent while average room rate increased by 7.7per cent, and revenue per available room by 7 per cent. Underlying core profitability was up by 34 per cent to £888,008, operating margins were maintained, and capital investment at the Hydro was over £1.3m with a similar spend under way in the current year.

Mr Leckie says that while group performance compares favourably with its sector, “there remains some uncertainty as to the extent and timing of the ongoing economic recovery and the impact on customer demand”.